I haven't Blogged for a long time, having been too busy finishing off my last book, writing the new one (working title: Imperium:Quintus) and adding Kindle X-Ray to the first three novels.
However, the recent ill-informed press commentary on what some parties refer to as the "Crises in Housing" has finally stirred me up enough to put finger to keyboard (pen to paper is so last century!) and set out my views and a potential solution.
Firstly, the Blog's title sums up my feelings. There isn't a housing crisis, for if there was one, we would have tens of thousands of families without a roof over their heads, wandering the streets every evening. They don't. What we do have, however, is an affordability crisis, whether you wish to buy or rent.
Despite what we are led to believe, there is plenty of land to build on, even in London. You don't even need to touch the green belt, playing fields or parks. Unfortunately, much of it is held in land banks owned by well-known supermarket chains, national property development firms or private speculators. By restricting how much of it they free up for new homes, these canny bastards are profiting from the increasing land values without having to spend a penny. It is in their interest to build as little as possible, as they can just sit back and watch the land banks go up in value.
So, how do we crack the supposedly difficult problem of not enough houses being built? It's quite simple if you break the problem down, so here's my take:
In the Budget, Hammond should announce a tax on land purchased by builders, investment companies etc that isn't been developed after a period of say three years. An annual tax of perhaps 10% on the purchase price would encourage them to develop or sell on. In addition, any profit on a sale after three years is taxed at 50%, no exemptions allowed. Safeguards would be required to stop firms simply selling on to a subsidiary etc before the three years is up to stop them resetting the 'clock.' This will encourage firms not to hold onto vast land banks, nor to speculate on ever increasing land values.
Next step. Cancel Right to Buy and stop Councils selling off their remaining housing stock to Housing Associations. While RTB helped many get onto the property ladder, it also kick-started the property price boom. What possible incentive does a Council have to build new homes for the rental sector when they then have to be sold at a loss or steep discount? Utter madness.
Next step, but this will need some explaining, so bear with me.
First off. How does the Government fund its massive annual deficit? It issues Gilts, which are bought by banks and investors. UK Gilts are seen as ultra-safe as the UK has never defaulted on its debts, not even during post WW2 austerity (which makes the current one seem insignificant). These Gilts are sometimes sold at a small discount to the face value and pay a fixed interest rate to the holder, currently very, very low. These are issued for varying terms, six months right through to thirty or more years, at which time the Government has to pay the holder its face value.
Secondly, let's look at our housing stock. From what I understand, new timber-framed houses have a design life of somewhere between 50 to 100 years. Old fashioned brick and tile ones last for centuries, but let's assume 150 years. To build a decent, three bedroomed house, with a bit of garden (assuming you are a not for profit organisation-I'll come back to this later), taking advantage of economies of scale, is around £150,000. Build 100,000 of these every year and the cost is £15,000,000,000. Fifteen Billion. Borrow this sum, via 50 year Gilts at 1% and the interest cost is £150,000,000 (one hundred and fifty million) every year. But, if you rent them as Council Houses at £150pw the income is £780,000,000 (seven hundred and eighty million), at least SIX TIMES the annual cost of borrowing. The more you borrow and build, the greater your income.
Now comes the complicated bit, so pay attention:
Of the £780m annual income, £150m goes to servicing the interest, leaving £630m spare. Let us be generous and allow the Councils to keep another £150m, which leaves £480m to be put aside by the State to eventually pay off the 50 year Gilts when they fall due. Dividing £15billion by £480m actually gives a payback time of just over 31 years.
Think about it, for every 100,000 Council houses built, Councils would benefit to the tune of £150m and the debt would be completely paid off in just 31 years. For the next 119 years of the property's life, all the rental income is going back to the Exchequer. Far from being a drain, we are really investing for the future of this country.
Go on, check my maths.
So, my simple suggestion is for a new, not for profit national house building agency to be set up and for it to be tasked with building Council Houses. New Towns, complete with parks, pubs, schools and all the relevant infrastructure. The money is to be borrowed via 50 year Gilts, backed by the difference between income and servicing costs held in escrow to ensure future Governments can't spend it.
So, when you next listen to a politician bang on about the housing crisis and spout there isn't anything that can be done, ask yourself this simple question: Why not?
